Why the carbon footprint of oil companies matters

A 2018 study showed Saudi Arabia with almost the lowest emissions per barrel produced globally, because of its large, prolific and relatively less mature fields

(FILES) In this file photo taken on June 02, 2015 a picture shows the logo of US oil and gas giant ExxonMobil during the World Gas Conference exhibition in Paris. ExxonMobil announced December 14, 2002 it will reduce its emissions over the next five years bowing to growing public pressure from activists, including the Church of England, to make changes.  / AFP / ERIC PIERMONT
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Several recent targets set by big oil companies from Europe and, increasingly, the US to reduce their carbon dioxide emissions have drawn attention.

Although they include famous names such as Shell, Total and BP, these are relative bit-part players in the global industry. National oil companies produce 55 per cent of the world’s oil and gas – and scrutiny is now falling on them.

The industry’s greenhouse gas emissions, mostly carbon dioxide and methane, come from three sources. The first is oil and gas combusted by oil companies to power their operations, or leaked or deliberately flared when unwanted.

This is followed by indirect emissions from the electricity they purchase while the third, and by far the largest, involves emissions from consumers who buy and use their products in power stations, factories, home boilers, planes, ships or cars.

When it comes to the “Scope 1” and “Scope 2” emissions, companies have several options. They can improve energy efficiency, fix leaks, capture gas for use instead of flaring it and employ more renewable energy. Norway’s state oil company Equinor will use innovative floating wind turbines to provide about a third of the power used by its offshore Snorre and Gullfaks oil platforms.

Most promising, they can capture their carbon dioxide emissions and reinject them underground, either for safe storage or to improve the recovery of oil and gas.

However, Scope 3 emissions are the biggest challenge: 80 per cent to 90 per cent of a typical oil company's emissions are from the combustion of its products by customers - something not under its direct control.

This can be reduced only by the corporation reducing its sales - and perhaps transitioning to renewables or other non-carbon energy. It could also sell for uses such as petrochemicals, where carbon dioxide is not released; employ carbon capture and storage technology when the oil or gas is burnt, which is unlikely to be feasible for cars or aircraft; convert hydrocarbons to hydrogen, a zero-carbon energy carrier; or “offsett” emissions by paying for carbon-removal initiatives such as reforestation.

As with big European oil companies, Equinor, ConocoPhillips, Occidental, Canadian pipeline leader Enbridge and others have committed to variations of net-zero emissions, usually by about 2050. This comes in the face of demands by campaigners, governments and, increasingly, investors.

ExxonMobil, famously impervious to environmental demands or any other pleading, dismissed such targets as a “beauty competition” in March.

However, activist shareholders are now pushing it to disclose and reduce its emissions, including those in the key Scope 3 category.

National oil companies might have thought they were immune to such pressures but things are changing. Many have partial stock market listings, including Equinor, Brazil’s Petrobras, big Russian and Chinese companies, and, as of last December, Saudi Aramco, albeit on the local Tadawul exchange.

Increasingly, they are raising publicly traded debt, as Mexico’s Pemex has for years, and as Energy Development Oman, the new company that holds Oman's stake in the country's main oil producer, may do.

They have partnerships with international oil companies and service providers that have made zero-carbon commitments.

Perhaps, most importantly, they sell their products to countries that have promised to reduce net emissions to zero between 2050 and 2060, including the EU, the UK, China, Japan, South Korea and probably the US under the Biden administration, amounting to three quarters of the global economy. Carbon taxes and standards may obstruct their sales to these markets.

Estimates of the carbon footprint of major oil producers are good news for some NOCs. A 2018 study in the journal Science showed Saudi Arabia with almost the lowest emissions per barrel produced globally because of its large, prolific and relatively less mature fields, low flaring of unwanted gas and high level of energy efficiency.

Norway, the UAE and Kuwait were also rated as doing relatively well. Countries with high levels of flaring and methane leaks or those that produce energy-intensive heavy oil such as Algeria, Venezuela, Canada, Iran and Iraq came out much worse.

Eventually, a poor climate performance by an NOC will reflect badly on its host government.

Corporate disclosure and environmental researchers mean growing attention around NOCs. As recent research from my colleagues at Columbia University’s Centre on Global Energy Policy shows, satellite sensing of methane leaks and gas flares has become increasingly sophisticated.

In January last year, GHGSat, operated by a Canadian company, found a large escape from fields in Turkmenistan that had been occurring for at least 14 months. This was communicated to the national gas company, which did not respond officially but did eventually stop the leak.

So, NOCs need to take the climate challenge seriously. They may not be ready to commit to a net-zero target for Scope 3 emissions, which would imply greatly reduced overall oil output, but they should set a reasonably imminent goal for eliminating their own operational emissions.

Aramco is a member of the Oil and Gas Climate Initiative, whose membership includes NOCs from Brazil and China, Shell, Equinor and others. The Saudi state oil company invests in the reduction, recycling and reuse of carbon dioxide.

Last week, Adnoc announced a partnership with Total to reduce fugitive methane and carry out research on carbon capture and storage.

The company’s latest five-year plan includes the development of a “hydrogen ecosystem”. The planned connection of its offshore fields to the onshore grid will allow it to use the emirate’s growing nuclear and solar power generation that is zero-carbon.

Some national oil companies are aware of the climate threat to their business and to the foundation of the national economy. Others are mired in what seem to be more urgent or tractable problems. However, sooner than they think, all state petroleum producers need a zero-carbon plan.

Robin Mills is chief executive of Qamar Energy and author of The Myth of the Oil Crisis